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Banks and the Aro Economy: Resolving the Sustainability Question

Recently,
the Union Bank of Nigeria threatened to pull out of Arochukwu and relocate to
Ohafia, citing as it were, high operational costs, lack of basic economic
infrastructure and shallow customer base to sustain profitable operations as
reasons. It was one news that riled the Arochukwu community both at home and in
Diaspora. Before then a similar threat had emanated from First Bank of Nigeria
based on the same argument but with a reference to insecurity having been
attacked by armed robbers that led to the closure of the branch for several
months. On the two threats, the Aro elite, led by Nzuko Aro rose to the
occasion and used their contacts, supplications and promises of strategic
re-engagement to persuade them to stay. However, addressing the issues raised
in their arguments are still on- going and this is where this piece intends to
weigh-in and make some humble
contributions, especially on the vexed issue of business sustainability of the two bank branches in Aro.

There
is no gainsaying that Aro community needs these two bank branches for their
daily banking needs, especially considering the fact that Aro Micro Finance
bank had ceased to function, perhaps due to the same reasons. Given the
infrastructural challenges facing Aro community, for the two remaining banks to
contemplate a pull out was unimaginable. If that happens, not only that
whatever would be left of the Aro
economy will go under, but the consequences for hapless aged ones and other
classes of dependents that rely on
transfers from their relations for
survival would be dire.That said, we
must be mindful of the fact that banks are not charitable organisations; they
are set up as profitable ventures that invest public and private capital with a
promise to return profit on them. In business, it is the ability to negotiate
relationships that translate into profit that matter. Otherwise, no matter the
strength of sentimental and emotional logic on allowing the banks to operate in
Aro without offering any concrete profitable opportunities will stand.

The
business environment in Aro, to say the least, is tough. Aro is a destination; it is either you are
going to Aro or you are coming out from Aro. It does not offer any transit
opportunity to other communities and therefore, the opportunities that transit
town’s offer for businesses are completely lost. The deplorable condition of
its road and power infrastructure remains embarrassing to businesses. For
instance, the cost of transporting goods from Aba or Umuahia to Aro is double,
if not triple of same distances that have better roads. These costs are
transferred to prices of goods and services and thus render them uncompetitive.
Indeed, a back of the envelope calculation shows that average inflation rate in
Aro is over 150 basis points above the national average. In economic terms,
high inflation is regarded as a tax on the poor because not only do they not
have steady source of income, but their income growth remains upwardly sticky
over time and rising inflation simply eats upwhatever value left with their
static and uncertaindisposable income.

Notwithstanding,
banking and payment systems all over the world are currently undergoing
phenomenal transformation and Nigeria is not left out of this revolution. The
emergence of internet, mobile phones and virtual banking services has rendered
the issue of profitability modelling based on the growth of bank branches
anachronistic. Accounts can be opened anywhere, transferred to any branch and
operated from any part of the globe without the bank losing profits that accrue
from such transactions. While banks do not stand to lose much in their service
charges based on their weak branch operations, there is an emerging inverse
relationship between banks technology driven operations and their ability to
grant loans to their customers to grow their business especially at their rural
branches.

Banks cannot just exist to benefit from capital created from elsewhere; they must be part of growing local businesses through credit creation in their local branches from which customers can grow their profits, increase their deposits, and consequently improve banks earnings from interest earnings and other service charges. Therefore, the sustainability argument for Arochukwu rural bank branches must be approached from both ends of the stick- the bank and the rural customers. Each has a critical role to play to make this symbiotic relationship work.

This
brings me to what is currently referred to as the ‘CIVIC CENTRE CHATTER’ on
sustainability of banks and the role
they are expected to play in the growth of Aro Economy. The interaction which
was recently brokered by Nzuko Aro yielded very fruitful results.Specifically,
the bank demanded action on increased deposit base, return of government
accounts (especially local governments and other institutions) ,improved road
and power infrastructure and opening of more business accounts. Nzuko Aro on
their part promised to use its good
offices to explore the return of public institutions accounts including local
government; call on Aros to open
accounts with the rural branches or transfer existing accounts to the banks and
mount subtle pressure on the political
elite to fast-track effort in fixing the rural roads and power infrastructure.
Of special note is the effort by Nzuko Aro to appeal to high net worth Aro sons and daughters at home
and in Diaspora to deposit huge sums ranging from one million and above in the
bank branch to effectively grow its deposit base expeditiously.

While
these propositions are in order, what remained sketchily discussed was how
Arochukwu rural businesses would benefit from credit that could be created from
such huge deposit base. I am aware that credit creation by commercial banks
are governed by stringent risk considerations
such as poor returns to investment, weak
cooperate governance of such businesses and challenging infrastructure and
security environment. All these if not well calibrated into risk calculations
could lead to loan defaults with huge consequences for the banks and the
customers alike. However, it is important to note that business risks are not
generic for every community and therefore some idiosyncratic and strategic
considerations should be developed by Arochukwu banks to be able to extend
loans and recover them without using templates developed for more developed
urban communities.

In
this regard, I strongly recommend the employment of relationship banking
strategy for use in Aro business community by the banks. This approach emphasizes
close cooperation between the banks and their customers to monitor their
businesses and guide them appropriately to avoid risky ventures that could lead
to business failure. Customers that are sincere and keep faith with this
approach are rewarded with credits which is now not based on strict risk
templates but on the sincerity and faithfulness of the customers to open up to
the banks for relationships based on
trust.

Indeed,
a glimmer of hope could be seen from the growing number of rural businesses
springing up in Aro notwithstanding the harsh businesses environment. Worthy of
mention is hospitality, bottled water, agri-processing, building construction
and a host of others that are undeterred by the challenges of power and road
infrastructure and are forging ahead. Such businesses need urgent support from
the rural banks given the fact that if business environment improves, it is
these initial risk- takers that will be in good stead to benefit from the bank loans having weathered the storm when
things were not very much favourable.

The
bottom line, though, is that the businesses environment in Aro needs urgent
improvement and what it requires are not issues that the community alone can
handle. It must involve governments at all levels to be able to provide basic
infrastructure that will enable rural businesses to thrive. This is where our
political class must take the bull by the horn knowing full well that poverty can be fought not only by giving
hand outs to the poor, but providing them with employment opportunities that
guarantee steady income. There are very few avenues to ensure that this happens
more than enabling businesses to create job opportunities and this can be
easily done through building trust and effective business relationships between
the banks and Aro business community.
Ndewo nu.

About author

Mazi Kanu Ohuche holds a Doctorate in Development Economics, specializing in Institutions and growth, from University of Nigeria, Nsukka ( UNN). He holds a first degree in Economics and Masters in International economics from the same University. Dr. Ohuche also holds a post graduate Certificate in Budget and Public Expenditure Management from Duke University Sloan’s School of Public Policy in Durham North Carolina, USA and was a University Lecturer .He was the IMF Country Economist for Nigeria for four years and has been Adviser to Four Economic Advisers to the President of Nigeria. Currently, he is the Special Adviser to Dr. O. J Nnanna, the Deputy Governor in charge of Financial System Stability in Central Bank of Nigeria. Dr. Ohuche is married with four kids and resides in Abuja.